Help a Rookie Analyze a Deal in Kentucky

[Scott Emsley]

On the main BP page, the #1 trending discussion today is: This is Not the Real Estate Environment for Rookie Investors. My current partner and I are rookies, and we're analyzing the deals anyway. 

Here's the current layout. Cash flow is King to me. My partner likes some cash flow, but mostly BRRRing out her cash (down payment, closing costs, and rehab). I am mostly the sweat equity, she is mostly the financier, but there's overlap in both. 

I found a deal to purchase several duplexes in small town KY. I think the deal looks good. There are numbers that I'm confident in: 

• - Cash flow per door = $298 ($596 per duplex)
• - Cap Rate = 8.56%
• - Cash-on-Cash ROI = 18.53%

Then there are the numbers that I am (conservatively) speculating about:

• - Rehab cost total = $50,000 + 10% extra for unknowns
• - ARV per duplex = $179,000 - 210,000

This is a big investment for both of us. I've got a bit of analysis paralysis, and plenty of folks saying "don't do it because of ...(fill in the blank)". However, both my partner and I have stable W2 incomes, and so I think that now is a great time to buy, regardless of COVID, presidential election, economic recession, etc. Also, my crystal ball is broken, so I don't know what the future holds, and I've never been a "time the market" kind of investor. 

What could I be missing? If my partner doesn't want in on this deal, should I proceed without her?  Without her, I could only afford to buy half of the available duplexes. What reasons should I have to jump in sooner, rather than later?

[Andrew Kougl]

@Scott Emsley

@Joseph Back will give you a good idea on rehab since that's one of his strengths, I can't help there, but I can assist by looking at your numbers as a second set of eyes. Cash flow is subjective and you want to make sure you are including PITI, vacancy, repairs, cap ex, utilities, trash, sewer, lawn, snow.

I have a couple duplexes myself in Frankfort and am currently under contract on a triplex in Lexington.

Do you need to buy all the duplexes as a package or can you break it up? In a rural area, and if you are rehabbing these yourself, you might want to methodically go through these and get one done before securing the next. This will allow for some forward momentum while you wait out the seasoning period.

Andrew